In 280 Characters or Less

This list is added to quarterly.

  1. I am always amazed at how patterns tend to be repeated again and again over time. A particular pattern will form, and I will think to myself, “I have seen that before in this or that market.”
  2. Markets that are down hard during a week often have a profit-taking correction on Friday.
  3. Rounding patterns are complicated to trade because a trader never knows when the overlapping rallies and reactions will end.
  4. As a general rule, I risk 50 or so basis points on each trade. In doing so, the capital I have allocated to equities can only cover a position of 15 or so stocks.
  5. The symmetrical triangle is the most unreliable of patterns and provides tactical trading challenges with both entry and risk management.
  6. I would be more upset with myself for missing a move than for taking a loss. Sometimes trading is a matter of taking the path of least regret.
  7. Chasing markets is a very bad habit to develop. It much better to develop the discipline of getting into markets at the proper time and price.
  8. There are no holy grails. The best a trader can attain is an edge.
  9. I usually take profits at targets. Markets can then trade much higher, but they do so without me. I have no compulsion to catch the entirety of a market move – as if this is even possible.
  10. More can actually be learned from failed trades than from successful trades on the nuances of trading with chart patterns.
  11.  I like patterns that are “stand-alone” in nature – in other words, not just part of a much larger price congestion.
  12. A trader has only one thing of value – trading capital. Without trading capital, a trader is out of business. 
  13. Disharmony between one’s overall market views and one’s trading maneuvers create emotional stress. Welcome to trading.
  14. There is a difference between a good trade and a profitable trade. I cannot control the outcome of a trade. I can focus on taking good trades. 
  15. Rounding bottoms are tough to trade for traders who want to use a fixed stop. The only way to trade a rounding pattern is to take a very undersized position and hang on.
  16. As I have often said: An opinion is not a position, and a position is not an opinion.
  17. I can be wrong on a trade. I can be wrong on a series of trades. I can have losing days. I can have losing weeks. I can have losing months. I have even had a couple of small losing years – mostly due to not sticking with my plan.
  18. The reality is that most ways to mark up a chart represent noise, not signals. Adding indicators and studies and analysis methods just complicate the noise factor. 
  19. I am a believer in Bayesian probability theory. I believe most great traders – whether they know it or not – are Bayesian in their thinking about markets.
  20. I have been engaged in trading since 1976 – since 1981 as a prop trader. Despite the experience, there are many lessons I must learn over and over again. The lesson: Don’t chase markets.
  21. Whenever I have an intraday stop in place, I attach a protective stop to the entry order.
  22. According to Edwards and Magee, a flag or pennant lasting more than four or five weeks should be looked upon with suspicion.
  23. I hate drawdowns. They are dreadful! Drawdowns are a subject of which I am well aware. The markets serve up humble pie to traders. I have eaten more than my fair share, and the taste never improves.
  24. When a volatile market starts to dig its hands into my pockets, my view of the market becomes secondary to my need to protect my pile of chips.
  25. I believe it is important for a daily chart pattern to launch the completion of a weekly or monthly chart structure.
  26. I seldom have interest in trendline violations simply because the trendline is the ultimate in diagonal chart developments – and I do not trust diagonal patterns.
  27. The J-hook pattern — Which in a bull market is a manipulation by the strong hands to get rid of the late-to-the-party buyers.
  28. Every trader must find an approach that works for them. What works for one trader may not work for others. 
  29. Sometimes a trader gets lucky on pennants and flags – as many times as not a trader takes a small ding.
  30. I would prefer a market to pause at an important chart level prior to bursting through – it is easier to determine risk when this happens.
  31. Only arrogant traders are offended when markets go against their positions and biases.
  32. While I prefer to wait for a Wide Bodied Bar close to establish a position, when the breakout boundary is well defined I may pull the trigger intraday.
  33. Whenever the general market gets whacked, be alert for stocks that quickly move into important new high ground.
  34. Sometimes trading is like tossing mud against the wall. Sometimes the mud sticks, more often than not it drops to the floor.
  35. A rounding bottom — This is the most difficult of all patterns to establish a position. Rounding patterns typically result in near-vertical advances at some point.
  36. A trader should never become an emotional stakeholder in a trade. Remember, my win rate hovers around 50% — my default expectation is that the next trade will be a loss. 
  37. Determining the breakout point of a weekly or monthly chart is extremely dicey. This is why daily charts must be used for trade entry signals.
  38. No matter what a trader uses to provide trading signals – charts, numeric analysis, indicators, fundamentals, cycles, etc. – most signals fail. 
  39. Keep in mind that there is nothing sacred about a chart pattern. Markets are not obligated to behave in accordance with chart formations.
  40. As the old trading saying goes, “When in doubt, stay out!”
  41. Being right on a trade is overvalued. 
  42. I feel no urgency to exit a profitable position when a trend is orderly. My rule is “head for cover” when market volatility begins to put my position into the red.
  43. Every trader has his or her own “say uncle” point during a counter-trend correction. 
  44. I have very little patience with a position in a market that enters a corrective phase longer than a few weeks in duration.
  45. There will always be another good set up – in fact, there will always be much better set ups.
  46. No matter how much we think we know what a market will do, we really do not have a clue. Remember, “strong opinions, weakly held” is a good perspective on trading.
  47. The concept of the Wide Bodied Bar breakout is even more valid on weekly charts than on daily charts. The running wedge can be a sign that a stock could be gaining thrust.
  48. Bull trends with overlapping upward waves create havoc for the tactical guidelines of my trading plan. In short, I do not do well when there are sizable overlapping waves within a bull move.
  49. I am not a fan of pyramiding in the direction of a profitable trade. The reason is that it is too easy to get “position-heavy” and then get blown out on a big correction and end up missing the trade. I am not saying that this policy is right for everyone, but it is right for me.
  50. I far prefer to be long stocks in strong bull trend than stocks in congestion zones. 
  51. I have never been very good at flipping a position from long to short. It is not the way my mind works. Traders need to know what they are good at and what they are not good at. I give credit to traders who can turn on a dime. But this is not me.
  52. Momentum is a grand companion when it comes to stock trading. Many traders would rather try to find a stock that has not yet moved. I would far prefer to be long a stock that is in a leadership position rather than a stock that has lagged.
  53. High prices are not bearish, just as low prices are not bullish.
  54. All things being equal, my preference is to be short rather than long. 
  55. Should a chart trader wait for a market to confirm the completion of a pattern and then wait for a retest of the formation in order to establish a position?
  56. Most often, the “what ifs” do not come to pass. But, there have been times when they have come to pass. And these have been my most profitable trades throughout the years.
  57. I have no control over what a market will do. The markets will do whatever the markets decide to do.
  58. My goal is to simplify the understanding of a price graph, not to make it more complex. As Nate Silver so wonderfully discusses in his book, complexity brings with it noise, not clarity. This is a reason I am not a big fan of using lots of indicators. 
  59. Sustained trends have a way of covering all kinds of mistakes and bad habits. In fact, strong and persistent trends can become the breeding grounds for habits that will eventually prove quite costly to traders.
  60. While waiting to buy a retest of a breakout is a fully acceptable strategy, there is nothing more bullish than a market with traders fishing behind the net (not willing to chase the initial advance). 
  61. The only thing I have control over is the orders I enter. End of story. A trader is an order enterer.
  62. There are times when I take a position in a stock based on the chart of a highly correlated commodity item. There are times when I may do the opposite – using a stock chart as the timing mechanism for a futures trade.
  63. More often than not, I regret anticipating a breakout – but every once in a while, it pays off. When it pays off, it can pay off big because it allows me to build a bigger position at the point of breakout for the same risk.
  64. Being my favorite trade at any given moment is NOT directly correlated with the probability of success. Truth be told, there is probably an indirect correlation.
  65. I generally take profits at the implied targets of chart patterns. Every once in a while, I will let a trade go. Which is best – taking profits at targets or allowing a market to continue in its trend? I can argue that both ways have merit.
  66. A trade is nothing more and nothing less than a datum point in a series of data points subject to probability theory.
  67. The Donchian Weekend Rule specifies that a market making a new high on a Friday should be bought with the idea of covering on strength the following week. The Weekend Rule is even more valid and dynamic when it precedes a three-day weekend.
  68. If I mark up a chart one way, but the market does not do what I think it should, then I know my labeling was wrong. But if I add a dozen indicators to a chart and the market does not do what I expect, how do I know which indicators were wrong?
  69. Novice traders (and old-time experienced traders as well) can place far too much emphasis and importance upon being correct on a trade. 
  70. Charts are useful for trading only when patterns are clear, and prices follow through. There are times when charts are worthless, and it is a waste of time to try to analyze price behavior.
  71. I always imagine how a chart might develop to provide a signal – seldom do my imaginings come to pass.
  72. Most of the successful speculators I know define themselves not as traders but as risk managers. 
  73. Thinking that a market is going up is NEVER a good enough reason to be long. 
  74. Expanded volume during a breakout is far more critical in stocks than it is in futures markets. Also, the strict application of Edwards and Magee rules would call for a pattern completion by at least 3% of a stock’s value to be considered valid.
  75. The real payoff in speculation comes from managing risks and allowing profits to run. “Cut your losses short, let your profits run” may be an overused statement, but it is true wisdom.
  76. Market direction is but one component of a trade. Other components include timing, risk management, overall money management, management of ongoing trades, sizing, and other factors.
  77. A word to the wise – be VERY VERY careful when identifying H&S failure patterns. Novice traders who become familiar with H&S patterns start to see them everywhere and the H&S failure can be even more dangerously misdiagnosed.
  78. My tolerance for drawdowns has decreased as I age and have more longevity in trading. Whereas 20%+ drawdowns were relatively commonplace earlier in my trading career, a 5% drawdown is now about as much as I want to endure.
  79. If I cannot short a market on my terms, I will skip the trade.
  80. A trader has a huge advantage over a baseball player. A batter can be called out on strikes without swinging at the ball, and a trader can only strike out when they swing. And, I am interested in swinging at the pitches I am best at hitting.
  81. My job is to enter orders that make sense according to my approach to trade selection and money & trade management. At the end of a year, I want to look back at the charts and have the trades I executed make sense in hindsight – whether they made money is a different story.
  82. There are many challenges facing a trader, such as proper capitalization, having a trading process, trade sizing, risk management, trade management, proper expectations, overcoming emotions, and weeding out noise. 
  83. I do not wait for Friday closes to enter a new position. Most of my entries are on intraday stops, some on daily closing price orders. My rule for weekends is to exit all trades that on Friday are underwater.
  84. Train your mind to limit your view of a chart to no more than a couple of seconds. If a pattern does not bite you, there is probably nothing there.
  85. When monitoring a category for a possible trade, I always want to pick the market with the best-defined chart.
  86. Capitalizing on the full extent of a trend and protecting profits are concepts at odds with each other. Creating harmony between two concepts that conflict is perhaps the most significant ongoing challenge of traders.
  87. What is the best way to trade charts? There is no best way, in my opinion. Even if charting is an approach that makes sense for you, every trader has their own personality, level of risk aversion, and amount of capital.
  88. I have found that it is dangerous to get one’s hopes up on any individual trade. Our faith must be placed on a process, not on a position or opinion.
  89. FOMO is a constant battle, and I must remind myself that there are 10 to 20 really good patterns each year. If I obsess over catching a certain market, I am likely to miss better opportunities.
  90. Risk and trade management There have been occasions when I have been filled on an entry stop at a better price than my stop. WARNING: If this happens to you, don’t consider it a gift. Consider it a warning and exit your trade immediately.
  91. I cannot emphasize how important it is for traders to be in a community with each other. I would not have made it without the community that was the Chicago Board of Trade.
  92. How do you know if a market is in a strong bull phase? Because every time you get cute and exit a position, you have to pay up to get back in.
  93. The few trades that really make a year extra special are seldom evident at the time of entry and are only clear after the trades are closed.
  94. There is a general rule I follow during a period when lots of similar signals are flashed. When two consecutive signals fail immediately, look out for general trend reversal.
  95. Markets that morph are challenging because often we get chewed up and then become gun shy.
  96. More than anything else, consistently successful market speculation is all about overcoming our inner demons – Vincit qui se vincit.
  97. Psychology of trading – The need to be “right” and the process of being profitable in market speculation are natural enemies.
  98. The worst habit in trading is to be obsessed with a certain market, buy strong rallies driven by FOMO, then sell on corrections driven by fear of losing. Important to learn the opposite — buy the dips, sell the surges.
  99. Do you really want to know yourself…really know yourself…the good, the bad and the really ugly? If so, become a market speculator.
  100. It is vitally essential for a trader to remember that there will always be a better trade coming along in the future for those who preserve their capital.
  101. Good patterns are self-evident. The more you have to study a chart, the less likely it is tradeable -THINK HORIZONTAL. Avoid diagonal patterns. TRADE IN THE SAME TIME FRAME OF YOUR ANALYSIS.
  102. My trading guidelines state that I should never take a losing trade home on Friday. As a swing trader, there are two parts to a trade — direction and timing. If I have a loss on Friday, at least one of the two was wrong.
  103. Is charting an art or a science? I’ve heard this dialogue for years. It’s neither; charting is a craft. We are craftsmen and women. Think of old-world artisans. Carefulness. Exactness. Obsession with detail.
  104. Success for a discretionary trader always remains an upstream swing against human emotions.
  105. I started at the Chicago Board of Trade more than 46 years ago; if you think I have all the battles won, think again. 
  106. Some guidance that might help your chart trading – THINK SIMPLE. 
  107. When trading chart patterns, set your expectations low and prepare for many patterns that look good, then fizzle. But, there are 10 or so that end up working, and often staying with these trades is the difference between a really good year and treading water.
  108. Having a desire to carry a position can lead a trader to read things into a chart that are not there. I am conscious of this risk.
  109. My first mandate as a trader is to protect my asset base at all costs.